Nonprofits claim Texas broke the law by leaving them out of Medicaid contracts

Texas health officials violated state law when they said they would award a multibillion dollar series of health insurance contracts to for-profit companies while overlooking nonprofit health plans, a lawsuit brought by two nonprofit health insurers alleges.

Up for grabs is a piece of roughly $10 billion, doled out to health plans that insure patients in Texas’ privatized Medicaid system who are blind, disabled or older than 65. The Texas Health and Human Services Commission announced tentative winners in October.

Absent from the list were the Houston region’s Community Health Choice and San Antonio’s Community First Health plans, two nonprofit health insurers that are owned and operated by local hospital districts. They argue that a provision of state law — entitled “mandatory contracts,” which addresses nonprofit health plans affiliated with public hospitals — guarantees them a spot in Medicaid’s STAR+PLUS program for adults with disabilities and the elderly.

“Community Health has consistently received high ratings for its health plan, as reported by the Texas Health and Human Services Commission, often outperforming its competitors,” the lawsuit claims.

For years, the health commission has interpreted the law as guaranteeing a spot for nonprofit health insurers in the privatized Medicaid system, advocates for community health plans say. But now the state agency, under the leadership of Executive Commissioner Courtney Phillips, appears to have changed course. (A spokesperson for the agency declined to comment for this story.)

In a sharply written letter to Community Health Choice, the Texas Health and Human Services Commission noted that the plan “ranked last” in its application for a state contract. State officials determined that the health plan “did not provide the best value,” wrote Kay Molina, the health commission’s deputy executive commissioner for procurement and contracting services, and therefore the nonprofit insurer failed to meet the minimum requirements for receiving a mandatory contract.

The letter surprised members of the health insurance industry, including for-profit health plans, which have long loathed the mandatory inclusion of nonprofit competitors they say are less equipped to manage costs.

Kay Ghahremani, chief executive of the Texas Association of Community Health Plans, an industry group for nonprofit insurers, wrote to the health commission to oppose the decision.

The purpose of the law, Ghahremani said, was to recognize and help offset costs borne by local hospital districts, which may collect property tax to help provide care to low-income and uninsured patients. She urged Phillips to wield “executive discretion in the selection process,” which is expected to wrap up in the spring after a series of appeals deadlines.

“As you know, Texas is large and diverse, both geographically and demographically,” Ghahremani said. “That is why the former commissioners at HHSC have recognized the need for diversity in the selection of [insurers] to include both national and regional health plans.”

Catherine Mitchell, the interim chief executive of Community Health Choice, raised issues with the health commission’s ranking of bids. “As we review the STAR+PLUS scoring documents, we are identifying numerous flaws and bias in the procurement process,” she said.

The procurement process for STAR+PLUS, the costliest of the state’s privatized Medicaid programs, has been rocky from the start. The state first asked health insurers interested in a slice of the program to submit business proposals in March 2018 but then halted and restarted the process two times, finally requiring proposals to be submitted in November 2018.

Nearly a year passed before the health commission publicly announced its list of winners. But records recently released by the health commission are raising eyebrows; a draft list signed by the commissioner a month prior was significantly different from the list of high-scorers ultimately designated by the agency.

UnitedHealthcare appeared to win big after the agency’s changes to its list of recommended contractors. A September memo approved by the executive commissioner recommended that UnitedHealthcare receive contracts to insure patients in four regions of the state. By October, that number had increased to nine.

Meanwhile, Amerigroup and Molina lost the health commission’s endorsement in two and three regions, respectively. The agency has declined to say why some health plans’ scores changed.

The health commission is no stranger to controversy surrounding its high-dollar contracting processes. After state officials were found to have made scoring errors in health plans’ applications to administer the Children’s Health Insurance Plan, Gov. Greg Abbott criticized previous health commissioner Charles Smith’s “failure to ensure the integrity” of the state’s procurement process, leading to three employees’ firing.

Disclosure: UnitedHealthcare, Amerigroup and Community Health Choice have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.